Limitations and exclusions of liability in business to business contracts in Saudi Arabia

Contractual limitations and exclusions of liability between commercial parties are governed primarily by the Saudi Civil Transactions Law (CTL), promulgated by Royal Decree No. M/191 and effective from December 2023. The CTL codifies Sharia‑based principles and applies to civil and commercial contracts unless displaced by a specific statutory regime. It recognises freedom of contract and permits parties to allocate contractual risk, including through limitation or exclusion clauses, subject to mandatory restrictions and public policy considerations. Saudi Arabia is not a common‑law jurisdiction and does not apply a system of binding precedent; however, courts generally respect clearly drafted contractual risk‑allocation mechanisms that do not conflict with mandatory law or core Sharia principles, including good faith, prohibition of harm and prevention of unjust enrichment.

The CTL prohibits contractual clauses that exclude or limit liability arising from fraud, wilful misconduct or gross negligence. In addition, liability for a harmful act (i.e. fault causing damage outside mere non‑performance of a contractual obligation) cannot be waived. While the CTL does not expressly address exclusions relating to death or personal injury, Saudi courts have historically treated such exclusions with caution and may invalidate them on public policy grounds. Limitation clauses are therefore most likely to be enforceable where they relate to breach, delay or defective performance, rather than intentional wrongdoing.

While the CTL permits parties to limit liability for non‑performance or delay, including by excluding consequential, indirect or special losses, Saudi courts do not rigidly apply common‑law categorisations of loss. Instead, courts assess causation, foreseeability and fairness by reference to Sharia principles. Clear and express drafting is therefore critical, particularly where parties intend to exclude categories of economic loss beyond direct damage. Such exclusions are more likely to be upheld where they are reciprocal, proportionate and negotiated between commercial parties, and do not purport to excuse fraud or gross negligence.

Exclusions for loss of profit, revenue, goodwill or anticipated savings are commonly used in B2B contracts and may be enforceable under Saudi law, provided they relate to contractual breach or delay and do not cover fraud, deceit or gross negligence. Saudi courts are generally reluctant to award speculative or future losses unless clearly proven and foreseeable. Particular care is required for exclusions related to loss of data or cybersecurity incidents, as mandatory obligations under data protection or sector‑specific regulations may limit the effectiveness of such exclusions.

Financial caps on liability are widely used and are, in principle, enforceable under the CTL. However, a court may decline to enforce a cap where doing so would legitimise fraud, gross negligence, wilful misconduct or harm extending beyond mere non‑performance. In practice, caps that are clearly agreed, commercially reasonable and proportionate to the contract value, and that include express carve‑outs for non‑excludable liabilities, are more likely to be upheld.

Exclusive remedy clauses are generally enforceable under Saudi law, reflecting the CTL’s emphasis on freedom of contract. However, courts may disregard such clauses where their application would deprive a party of compensation for actual harm, conflict with mandatory law or operate unjustly, particularly where the agreed remedy proves ineffective in addressing the breach or where the conduct involves fraud, wilful misconduct or gross negligence.

Although the CTL does not formally codify severance principles, Saudi courts may disregard the unenforceable part of a clause while enforcing the remainder of the contract, provided the valid provisions can stand independently. Including a clear severability clause materially strengthens this position.

The CTL introduces statutory limitation periods and treats time‑barred claims as inadmissible rather than extinguished. While parties may agree on certain procedural timeframes, there is uncertainty as to whether contractual clauses can shorten or extend statutory limitation periods, particularly where this would undermine public policy or mandatory protections. The prudent approach is to assume that statutory limitation periods prevail unless the law expressly permits contractual variation.

Public policy considerations rooted in Sharia and codified in the CTL override contractual limitations where enforcement would legitimise injustice, fraud, gross negligence or wilful misconduct. Courts may also intervene where clauses offend principles of good faith, proportionality or prevention of unjust enrichment. Mandatory statutory regimes may further limit contractual autonomy.

• Where Saudi law governs, limitation clauses are assessed under the CTL regardless of where performance occurs.
• Where foreign law governs but performance occurs in Saudi Arabia, Saudi courts may refuse to enforce limitation clauses that violate Saudi public policy or mandatory rules, particularly where harm occurred within the jurisdiction of Saudi Arabia. Choice of law does not override public policy restrictions.